Japan has big plans for chips

Japan is gearing up to supercharge its semiconductor industry. In the wake of giant expenditures by the U.S. and China, Japan is aiming to triple its domestic chip revenue by 2030—and recently dedicated $6.8 billion to the cause. It’s an ambitious undertaking—and there’s reason to think it’s going to work.

The tiny processors powering everything from smartphones to cars are essential to all nations, as recent global shortages have made very clear. But chips are uniquely critical to Japan’s future, thanks partly to its companies’ reliance on silicon, and the outsize role it plays in supporting the industry.

Consider the country’s top three most valuable companies: Toyota Motor Corp., Sony Group Corp. and Keyence Corp.—all empires built atop a silicon substrate. Keyence makes sensors and machine vision systems for factories, Sony’s key products are the PlayStation 5 console and image sensors. And Toyota literally can’t ship its latest vehicles without a steady supply of smart tech. Sony and Toyota both cut their production forecasts because of the enduring supply crunch this year, joined by another Japanese giant, Nintendo Co., which slashed more than a million Switch machines from its full-year plans.

Besides its globally recognized consumer electronics brands, Japan also has a cadre of indispensable suppliers that make the entire semiconductor industry possible. Ushio Inc. uses lasers to produce light closer in wavelength to X-rays than the spectrum visible to the human eye, which chipmakers rely on to spot potential defects. Lasertec Corp. is the world’s sole maker of equipment that tests stencils for the most advanced chip designs. Disco Corp.’s machines can grind a silicon wafer down to a near-transparent thinness and cut the tip of a hair into 35 sections. JSR Corp. supplies essential chemicals for chipmaking with a purity threshold so high that the equivalent of a single drop of coffee in two Olympic-sized swimming pools would be considered an unacceptable defect.

Yes, Taiwan and South Korea have all the key semiconductor fabs. But getting anything done in those countries gets harder without Japan because of its supply of the requisite materials and tools, plus chip demand and funding. It may be Japan’s general reluctance to be a noisy presence on the international stage—setting aside a trade spat with South Korea in 2019 built atop historic acrimony—that lets it be underestimated. This is a country capable of supporting sprawling multibillion-dollar businesses focused almost entirely on its domestic market. It has a population of 125 million, almost double my former home of the U.K., which still fancies itself a world power.

Japan is supporting a new fab from Taiwan Semiconductor Manufacturing Co. and Sony by paying for half the cost, and its tech ministry has been very clear that it intends to be a top player in the industry. Japan promised to increase its chip revenue to more than 13 trillion yen ($114 billion) by 2030. And while my instinct is usually to be skeptical of lofty government promises years into the future, I think this goal is attainable.

Chip supply shortages are an issue that will be with us for years—either in in its current severe form, or in various permutations over the next decade. There are just too many growth industries starving for silicon, from cloud services to smarter electrified cars to cryptocurrency mining. Plus a couple hundred million people insist on getting a new iPhone every year. Chip revenue is likely to continue to climb, the only question is who will be making the money. Bloomberg